Could you briefly explain what Medicaid is and why seniors and their family members should consider it when planning their finances?
Many people are concerned about the cost of long term care, particularly those who are approaching retirement. If one spouse is in need of long-term nursing care, many seniors worry that the spouse living at home won’t be able maintain the same standard of living as the couple had before the debilitating illness. A family can benefit from the assistance of an elder law lawyer in determining how to best position assets to take advantage of federal and state laws that offer protections and exemptions.
What are the Medicaid eligibility requirements for your state?
In Rhode Island a married couple is entitled to spousal resources allowances of up to $148,620. The taxable resources are determined as of the start of the long-term facility placement period. The spouse living in the community can retain half of the resources, subject to the maximum and minimum amounts. Equity in a house up to $688,00 is excluded from counting resources. If the home is part of the Medicaid recipient’s estate, Medicaid can recover the value.
The spouse at home can retain their own income. However, the spouse living in a nursing home is required to contribute. The spouse at home can keep enough income from the total to meet the $2,465 base amount if the income of the spouse is less than $2,465. The base amount may be increased if the household housing costs (such as rent or mortgage payments, property taxes, homeowner’s insurance and homeowner’s policy, plus an amount set aside for utilities) are higher than the $739.50 federally-set housing allowance.
What are the implications of asset transfers in senior financial planning for the ‘look back’ period?
A question on the Medicaid application asks whether the applicant, or their spouse, has made an uncompensated gift in the past five years. Uncompensated transfers are essentially gifts, but they can also apply to any transfer in which the person making the transfer has not received adequate compensation.
The next question asks, if the answer is yes, how many transfers were uncompensated. The amount of the transfer that was not compensated is then divided by $10,190. This number is known as the penalty divisor. The state publishes the average monthly cost of a nursing home in a state. This analysis will determine the number of months the applicant would have been able to pay for nursing home care if not for the gift. The ‘uncompensated gift’). The penalty period is the number of month that the Medicaid applicant is not eligible to receive benefits.
Many people are concerned about the cost of long term care, particularly those who are approaching retirement.
The period begins to run not on the date the gift was made, but rather the first of the month in which the applicant seeks benefits. If, for instance, an applicant paid for her grandson’s college tuition four years prior to applying for Medicaid, but then, through financial misfortune or a decline in health, applied for nursing home care as of the fourth and eleventh months following the gift, the gift would still make her ineligible.
Transferring assets to protect them from the costs of long-term care is a tricky proposition. Gifting assets can have tax consequences, and the recipient of the gift may not be able to manage the asset for a long time. Elder law attorneys can help older people understand the pros and cons of making gifts, and design a plan to suit their needs. A properly drafted irrevocable will can minimize some of the disadvantages associated with making gifts.
What assets are considered non-countable or countable for Medicaid eligibility purposes?
As mentioned above, a house up to the equity cap is not countable and may be transferred to an spouse who lives in the community. A primary residence does not include a second home, such as a holiday home or a residence in another state. Planning is important to avoid the probate lien. Personal belongings such as clothing and household furniture, automobiles, funeral contracts, burial plots, and prepaid funeral contracts are also exempt.
What strategies will be most effective in 2023 for protecting assets when applying for Medicaid?
In 2023, there are several techniques that can help a family plan properly. Married couples have more options than unmarried people.
Families should first ensure that they take advantage of all the above exemptions. Then, you can discuss with your client the options of using an annuity that is actuarially sound or a promissory. This plan converts a spouse’s income into countable assets and subject the income to the above income tests. These tests can be more lenient than asset tests and allow the spouse to keep all their income.
A properly drafted irrevocable will can also be used to plan ahead of time for a debilitating illness. There is a plan for a single individual who hasn’t planned ahead. It can protect some of their assets. This plan is complex, and clients should consult with an elder law attorney who has experience in this area.
What can be done to help?
Consider using an irrevocable Trust if a client is able to survive the five-year period of look-back described above, and has carefully assessed his or her capacity to live in the community even without the gifts. One of the advantages is that a trust can be set up to allow a third-party to manage assets on behalf of beneficiaries if they are not financially capable.
Transferring assets to protect them from the costs of long-term care is a tricky proposition.
It is possible to gain income tax benefits as well. There are ways to structure the trust in a way that avoids the higher rates of trust income tax and allows for a cost-basis adjustment to be made to the assets upon the death the person who funded and created the trust. The capital gains tax will be lower when the assets are sold. Gifting assets to a family trust or an individual is the preferred option. However, it’s important to be careful when deciding whether to gift the assets. Once they are given, the elder has no right to them back.
What are the ways that Medicaid planning is related to other estate planning strategies, such as using wills, powers of attorney, and trusts?
A review of Medicaid planning should be included in any estate planning consultation for clients over 60. It is important to have a power of attorney that includes Medicaid planning. This will allow for planning in the event that an unexpected health issue occurs such as a brain injury or stroke.
How can seniors prepare for the potential gaps that Medicaid may cover?
Medicaid was not designed to provide the kind of skilled care that is provided in hospitals. Medicaid was designed to cover custodial or personal care, which is care provided to individuals who cannot perform daily activities such as bathing, dressing themselves, ambulating, and transitioning. Medicare, not Medicaid, is the program which covers skilled care. Seniors who are retired and are not covered under a group plan that supplements Medicare and are able to support themselves in their community should consider a Medicare Supplement to cover the skilled care costs Medicare does not cover.
Do you have any additional comments to make about Medicaid planning?
Statistics show that it is highly likely that a person will need the kind of care provided in a nursing facility. Everyone should plan for these costs, which includes evaluating long-term care products and legal plans.
About Gene Carlino
Tell us about how you became a lawyer and your current practice.
I have always been fascinated by the law. Theoretically, it is the greatest invention of man. Before I finished my education, I already knew that I wanted to work with tax and estate planning. It is a wonderful opportunity to change the life of a family or individual, or to find common ground between opposing parties to a business deal.
What is your favorite aspect of work?
Every time I am able to help a client with a problem that they are having in my area of practice.
What are your plans for the rest of the year in terms of career?
I am 60 years old and have no plans to retire. I like working within the firm because I know that if I slow down, there will be great lawyers in our Trust and Estates department who can continue to assist my clients. If time permits, I’d like to write and teach.
Gene Carlino, Partner
Pannone Lopes Devereaux & O’Gara LLC
Northwoods Office Park Suite 215N 1301 Atwood Avenue Johnston, RI, 02919, USA
Tel: +1 401-368-6655
Gene M. Carlino works as a partner at Pannone Lopes Devereaux & O’Gara LLC. He has over 35 years of experience, including in estate planning, tax administration, Medicaid planning, trust litigation and probate administration. He was also the first President of the Rhode Island Chapter of National Academy of Elder Law Attorneys. Gene was elected a Fellow of The American College of Trust and Estate Counsel in 2022. His peers also selected him for inclusion in The Best Lawyers in America (r)in Trusts and Estates. He has also been published as an author, and was awarded the Rhode Island Bar Journal Lauren E. Jones Esq. in 2020. Writing Award.
Pannone Lopes Devereaux & O’Gara LLC, a multidisciplinary firm, is always looking for cost-effective solutions to offer their clients. The firm’s attorneys use innovation and collaboration to provide the highest quality of legal advice in multiple disciplines.